Permanent Gridlock

The showdowns on spending won’t end until the voters make up their minds.

Jay Cost

December 17, 2012, Vol. 18, No. 14

As the nation heads ever closer to the so-called fiscal cliff—​the January 1 deadline at which, absent congressional and presidential action, taxes will go up and (on January 2) spending will go down—

​both sides are bandying about accusations, counter-accusations, and counter-counter-accusations.

Democrats are convinced that the GOP is not negotiating in good faith, as it is in hock to supposedly extreme antitax activists. Republicans are similarly convinced that President Barack Obama and Treasury Secretary Timothy Geithner are bad-faith actors, content to drive the nation over the cliff because it will advance the left’s long-term agenda of higher taxes and lower defense spending. Similarly, both sides spy incompetence in their opposition: The left believes that Speaker John Boehner cannot control his House caucus, and the right suspects that President Obama lacks the temperament to broker a deal.

All of this​—​and more​—​might well be true, but the political class is too prone to explain gridlock as a function of individual personalities. While they no doubt matter, the two sides are deadlocked for much larger, structural reasons, which stretch back generations in some cases and ultimately have their roots in the chronic indecision of the American people.

The first, and most obvious, source of gridlock has to do with the issue at hand: top marginal income tax rates. For decades, the two sides have not seen eye-to-eye on this issue. A quick perusal of legislative history indicates that clearly enough. Ronald Reagan’s 1981 tax cuts passed the House of Representatives with 151 Democrats voting nay and just 88 voting yea​—​and most of those yea votes were Southern Democrats who have since been replaced by Republicans. Northern liberals hated the Reagan tax rates in 1981, and they hate them today.

Similarly, congressional Republicans have balked at tax hikes time and again. After Reagan’s job approval numbers deteriorated in 1982, his political capital dissipated and he was forced to pass a deficit reduction bill that included nearly $100 billion in tax increases. The bill passed, but 89 House Republicans split with the man who has since been remembered as the embodiment of the modern conservative movement.

This pattern continued over the next 20 years. George H. W. Bush ultimately agreed to a deficit reduction package in late 1990 that included $137 billion in new taxes, as well as an increase in the top marginal rate. Some 105 conservative Republicans in the House voted against the president. In 1993, Bill Clinton’s budget, which again raised taxes, won the support of exactly zero House Republicans. Democrats have demonstrated similar recalcitrance in supporting tax reductions: Just 10 House Democrats backed George W. Bush’s 2001 tax cut package, and only 7 supported the 2003 tax cuts.

Given that it is these very same tax rates that are now on the table, is it any surprise that the two parties cannot find common ground? Of course not. The reality is that there has been virtually no common ground on taxes for a generation. Indeed, it was the very lack of common ground that generated the fiscal cliff in the first place. Why should any be discovered now?

If anything, common ground​—​always in short supply​—​has been eroding over the last few decades, which points to the second structural reason for gridlock. Ronald Reagan was able to win crossover support from congressional Democrats for his 1981 tax cut passage in large part because he had won handily in their districts. Ideology aside, pure political calculation signaled to these Southern Democrats that Reagan was not a leader to defy lightly.

However, President Obama has only a fraction of this sway over congressional Republicans. While the votes are still being tabulated, it is a safe bet that an overwhelming majority of House Republicans will have come from districts that voted for Mitt Romney. The implication is stark: The two sides are basically representing different constituencies, with competing values and beliefs. What sway does President Obama hold over a Republican whose district went for Mitt Romney? The answer: very, very little.

Third and most important, insofar as the two political coalitions do overlap, it is thanks to an electorate that seems, at best, confused and uncertain about what it wants. Democrats these days like to tout polls showing that the GOP’s position on taxes is unpopular, but they often fail to mention just how sensitive those polls are to the wording of questions. Tweak the way the question is phrased​—​for instance, from asking about tax hikes on “the rich” (the Democrats’ favorite) to hikes on “small businesses” (the GOP’s preferred phrase)​—​and you will get starkly different answers.

Nowhere is this confusion more evident than in the 2012 exit polls. President Obama claims a mandate to raise taxes on the wealthy to reduce the deficit. Does the evidence back up that claim? Perhaps​—​it just depends on what evidence you are looking at. Some 60 percent of voters said that tax rates should either be “increased for all” or “increased for $250K+.” That seems to support the president’s position, but those same respondents gave a contradictory answer to a related question. The exit pollsters also asked if taxes should be raised “to help cut the deficit.” Just 33 percent said yes and 63 percent said no.

One potential explanation for this contradiction is that voters want taxes raised not for deficit reduction but for more spending. Yet just 43 percent of respondents stated that the “government should do more,” while some 51 percent said the government is doing too much. Public opinion on this issue is, in a word, incoherent. As a whole, the voters did not give a clear indication of what they want done with taxes, spending, and the deficit.

Why does the public seem so ill-prepared to answer basic questions about the size and scope of government? The answer might simply be: They never really had to before now. For generations, conservatives have warned about a government that was too intrusive and a danger to private initiative; liberals have been bemoaning a government that has not done enough to secure social justice. Yet the public has never had to make a hard choice because of economic growth. In the latter half of the 20th century, growth in real gross domestic product averaged 3.6 percent per year. This enabled us to have our cake and eat it, too: The government could grow every year, and do more to ensure equity between citizens, without intruding on the private sector via higher tax rates. Everybody could win, in some sense.

Since 2000, growth has been roughly half that, clocking in at 1.8 percent per year, which is about where most experts believe 2012 will end up. This stagnation has put unprecedented pressure on Washington. The “have your cake and eat it, too” combination of big spending and low taxes has generated an annual budget deficit that now tops 10 percent of gross domestic product, unprecedented in peacetime and unsustainable over the long haul.

This is a reality that appears not to have sunk in on the public. Polling data indicate that the people simply do not understand the parlous state of public finances​—​hence the refusal to brook tax hikes to deal with the deficit, or spending cuts in entitlements, the biggest drivers of the nation’s overdrawn account. Little wonder that, after two years of gridlock between two sides that cannot find common ground, the public obstinately refused to break the tie in 2012.

So long as the public continues to send mixed signals, and indeed appears not to fathom the depth of the problem, the two sides will not come to some kind of long-term agreement. Why should they? Better to kick the can down the road until the next election, in the hope that your side can gain an edge.

That points to a grim near-term future for American politics and policy. The fiscal cliff will not be the last showdown between conservatives and liberals on taxes and spending. Given that both factions occupy critical strongholds in the government​—​the GOP controls the House and a Democrat holds the veto pen​—​we should expect more of the same: gridlock, recriminations, and periodic crises that necessitate last-minute “grand bargains” that, on closer inspection, are not so grand. This state of affairs will continue until the American people finally decide which side’s approach they favor in dealing with the deficit.